Demographics of Wealth, 2018 Series, Essay No. 1

This essay explores the connections between a person’s level of completed education and measures of his or her family’s financial well-being, including income and wealth. For simplicity, we examine two discrete groups—families headed by someone who has completed a four-year college degree or higher (“college grads”) and those without a college graduate head (“nongrads”). This essay shows that inherited demographic characteristics significantly influence the expected income and wealth outcomes associated with one’s own education. These characteristics include birth year (and hence age at the time of the survey), race or ethnicity and parents’ education level.

Inherited demographic characteristics are key aspects of one’s identity over which one exerts no control. The view we take is that any adult outcomes that are systematically related to these inherited characteristics likewise are inherited or granted, rather than earned in any meaningful sense.

We document three important ways in which inherited demographic characteristics influence family income and wealth:

The head-start effect. Families headed by someone with certain “favorable” inherited demographic characteristics typically earn much higher incomes and accumulate much more wealth than families without these characteristics. Whatever a family head’s education level, being non-Hispanic white, being over 40 and/or having college-educated parents typically boosts income and wealth compared to families without these demographic characteristics (singly or in combination). The median college graduate family with all of the most advantageous inherited demographics—white, aged 40-61, college grad parents—had three times as much income and six times as much wealth as the median family overall. We estimated that over half of their advantage over the population medians ultimately can be attributed to those inherited characteristics, not their own effort or education.

The upward-mobility (or exceeding-expectations) effect. For families headed by someone with less advantageous inherited demographic characteristics, completion of a four-year degree typically boosts income and wealth far above the levels they would have achieved without a degree. These families move up the income and wealth rankings (relative to levels predicted by their inherited demographic characteristics) more than do college grad families with more favorable inherited characteristics. For middle-aged families, completing college boosts the median family with nongrad parents by 23 rungs in the income percentile ranking and 20 rungs in the wealth ranking, while college boosts families with college grad parents by only 11 rungs for both income and wealth.

The downward-mobility (or falling-short) effect. Finally, we show that family heads with college-educated parents who are downwardly mobile in educational terms suffer notable negative consequences; these are people who do not finish college even though their parents did. Relative to the income and wealth that would be predicted based on their inherited demographic characteristics alone, those who fall short of their parents’ college education are likely to slip decisively downward in the overall rankings—by 16 percentiles in income and 18 percentiles in wealth rankings for middle-aged families. Nongrad family heads whose parents likewise did not obtain college degrees drop by less than 10 percentiles in both income and wealth rankings relative to levels predicted by inherited characteristics alone.